Things one middle-aged economist finds interesting

In March the federal government created the most expensive new entitlement in four decades, even as the bond rating company Moody’s Investors Service warned that debt levels could soon precipitate a downgrade in U.S. Treasury bonds. The main opposition party fought the bill by decrying “cuts” to Medicare, and it has kept itself at arm’s length from one of the few politicians talking seriously about long-term reform.

Today may be terrible, but tomorrow is going to be much worse, at least as measured by such metrics as deficits, debt, and entitlement spending. In an April speech, Federal Reserve Chairman Ben Bernanke laid out the misery that awaits us. “The arithmetic is, unfortunately, quite clear,” he said. “To avoid large and unsustainable budget deficits, the nation will ultimately have to choose among higher taxes, modifications to entitlement programs such as Social Security and Medicare, less spending on everything else from education to defense, or some combination of the above.”

I’m not saying this to single out the Brits, because the politics of evasion has infected almost all western societies, including our own. Just about everyone knows that the U.S. government will have to turn toward fiscal restraint, for the simple reason that we can’t keep borrowing a trillion dollars a year (and turning over a total of five trillion a year in public debt) without incurring burdensome interest payments and running grave risks. But almost no one running for office is talking about this challenge in more than vague generalities.

I shudder to think of what will happen when we hit a wall—when the risk premium demanded on U.S. debt begins to rise and holders of capital become less and less willing to finance our structural deficit on terms our economy can afford. The people will feel blindsided and betrayed—rightly so. If you think public mistrust and anger are bad now, just wait. Will our leaders—starting with the president in his 2011 State of the Union address—summon the courage to treat our citizens as adults and level with them about what needs to be done? Our future is riding on the answer.

The next generation of American politics will belong to the people who can articulate this agreement and who can convince a majority of the American electorate to act on it. Take that to the bank.

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In March the federal government created the most expensive new entitlement in four decades, even as the bond rating company Moody’s Investors Service warned that debt levels could soon precipitate a downgrade in U.S. Treasury bonds. The main opposition party fought the bill by decrying “cuts” to Medicare, and it has kept itself at arm’s length from one of the few politicians talking seriously about long-term reform.

Today may be terrible, but tomorrow is going to be much worse, at least as measured by such metrics as deficits, debt, and entitlement spending. In an April speech, Federal Reserve Chairman Ben Bernanke laid out the misery that awaits us. “The arithmetic is, unfortunately, quite clear,” he said. “To avoid large and unsustainable budget deficits, the nation will ultimately have to choose among higher taxes, modifications to entitlement programs such as Social Security and Medicare, less spending on everything else from education to defense, or some combination of the above.”

I’m not saying this to single out the Brits, because the politics of evasion has infected almost all western societies, including our own. Just about everyone knows that the U.S. government will have to turn toward fiscal restraint, for the simple reason that we can’t keep borrowing a trillion dollars a year (and turning over a total of five trillion a year in public debt) without incurring burdensome interest payments and running grave risks. But almost no one running for office is talking about this challenge in more than vague generalities.

I shudder to think of what will happen when we hit a wall—when the risk premium demanded on U.S. debt begins to rise and holders of capital become less and less willing to finance our structural deficit on terms our economy can afford. The people will feel blindsided and betrayed—rightly so. If you think public mistrust and anger are bad now, just wait. Will our leaders—starting with the president in his 2011 State of the Union address—summon the courage to treat our citizens as adults and level with them about what needs to be done? Our future is riding on the answer.

The next generation of American politics will belong to the people who can articulate this agreement and who can convince a majority of the American electorate to act on it. Take that to the bank.